RHI scandal: How does the £400m overspend add up?
- Published
Stormont's cash-for ash scandal has landed taxpayers with a unexpected bill estimated to be in excess of £400m. The scheme was set up to provide incentives to switch to greener fuel sources, such as wood pellet burners. However, over-generous subsidies meant the more fuel claimants burned, the more money they could claim from the public purse. BBC News NI Economics Editor John Campbell crunches the numbers.
The Renewable Heat Incentive (RHI) scheme was originally supposed to be paid for under a funding stream known as Annually Managed Expenditure (AME).
AME is money which comes straight from the Treasury and does not come out of the Northern Ireland Executive's £10bn annual block grant from Westminster.
Social security benefits are the main item funded under AME in Northern Ireland.
The RHI scheme came with a difference - the AME contribution for Northern Ireland would be capped at 3% of the cost of the RHI scheme in Great Britain.
The initial estimate was that the Treasury would pay out around £660m over the 20 year life of the RHI scheme.
Anything above that would have to come from Stormont's block grant.
At first, that did not really matter because the uptake of the scheme in Northern Ireland was so low.
But there was a lurking problem - the RHI scheme in Northern Ireland was designed in such a way that it was much more generous than the GB scheme.
As demand picked up in the early 2015, civil servants could see the cost was escalating - but the implication of the AME cap seems not to have been grasped.
Then as applications spiked between September and November 2015 it became clear that the AME cap was going to be spectacularly breached.
The original £660m estimated cost has soared to almost £1.2bn.
The Treasury did not impose a penalty for excess expenditure in 2015-16 but made clear that from now on Stormont will have to make a contribution from the block grant.
For 2016/17, the Northern Ireland Executive has set aside £20m to cover the overspend.
The Northern Ireland Audit Office has estimated that the overspend cost up to 2021 will amount to £140m.
And in November, the senior civil servant David Sterling told Stormont's Public Accounts committee that the total overspend cost to Stormont is now estimated "to be in the region of £405m".
However Mr Sterling said "that will depend on a number of things" including future take up of the scheme in England and the consequent impact on the AME.
First Minister Arlene Foster is also planning measures to try to reduce that £405m bill - they are due to be revealed on Monday.